G.R. No. L-23041 July 31, 1969 E. RODRIGUEZ, INC., petitioner, vs. THE COLLECTOR OF INTERNAL RE ENUE !

"# THE COURT OF TA$ A%%EAL&, respondents. 'ARREDO, J.: This is a petition for review of the decision of the Court of Tax Appeals in its CTA Case No. 849, affirming the decision of the respondent Collector (now Commissioner of !nternal "evenue holding petitioner #. "odrigue$, !nc. lia%le for deficienc& income tax in the sum of '(),88*.** for the &ear +9,*. The records of the case show that on -ul& +., +948, Congress enacted "epu%lic Act No. ))), + pursuant to which the "epu%lic of the 'hilippines sued the petitioner, among four other defendants, in Civil Case No. /0,4 of the Court of 1irst !nstance of /ue$on Cit&, for the expropriation of a%out +,)(*,*** s2uare meters of land owned %& it and situated within the area delimited for the new capital cit& site. After due trial, the said court rendered a decision in the case, dated 1e%ruar& 3+, +9,*, with the following dispositive portion4 56#"#17"#, 8udgment is here%& rendered, declaring plaintiff entitled to retain and appropriate the propert& involved in this proceeding, as site for the development and esta%lishment of the new capital cit& of the 'hilippines in accordance with our condemnation order dated 9eptem%er +9, +949: and ordering plaintiff to pa& defendants, as 8ust compensation for the lands to %e ta;en from them, the following amounts, to wit4 to defendant #ulogio "odrigue$, 9r., the sum of T6!"T<0 N!N# T67=9AN> 9#?#N 6=N>"#> 9#?#NT<09!@ '#979 (')9,..(.** : to defendant #. "odrigue$, !nc., the sum of 7N# A!BB!7N 17=" 6=N>"#> #!C6T##N T67=9AN> 9!@ 6=N>"#> 17=" ('+,4+8,(*4.** '#979: to defendant Bu$on !nvestment D >evelopment Co., the sum of 1!?# T67=9AN> T57 6=N>"#> #!C6T< (',,38*.** '#979: and to defendants #nri2ue Aanaloto and Canuto C. Aanuel, the sum of 9!@T##N T67=9AN> 9#?#N 6=N>"#> T5#NT< ('+(,.3*.** '#979, with interest at the rate of (E per annum on the said amounts from 9eptem%er +9, +949, the date the plaintiff entered upon the possession of the lands in 2uestion until pa&ment, plus the costs. 1ollowing the issuance of the a%ove0mentioned decision, however, a series of negotiations were had %etween petitioner and the Covernment, represented %& the Capital Cit& 'lanning Commission, after which, the

said parties entered into a compromise agreement under date of Aa& ++, +9,*, providing, inter alia, as follows4 (+ That the parties will accept the decision laid down in said case %& the Court of 1irst !nstance of "i$al (/ue$on Cit& Franch with the following stipulations4 a. That the defendants mentioned a%ove here%& waive all interest due on the ad8udged value of the expropriated properties: %. That the defendants a%ove0named here%& donate 3*.,**( s2uare meters out of Bots Nos. 4+0C0) and )9, o%8ect of expropriation in Civil Case No. /0,4: c. That defendant #ulogio "odrigue$, !nc. o%ligates itself to donate as it here%& donates the land o%8ect of expropriation in Civil Case No. /09*, in favor of the "epu%lic of the 'hilippines, containing an area of +,,3** s2uare meters, which is a portion of Bot No. 4+0C0) as indicated in the plan attached to the complaint therein: said defendant #ulogio "odrigue$, !nc. %inding itself to execute the necessar& deed of donation thereof: d. That defendants named a%ove agree to the pa&ment of the price awarded %& the Court su%8ect to the foregoing stipulations in the total sum of 7N# A!BB!7N T57 6=N>"#> 1!1T< T67=9AN> 9!@ 6=N>"#> T6!"T<0 7N# '#979 and #!C6T< C#NTA?79 ('+,3,*,()+.8* pa&a%le in the following manner4 + 9!@ 6=N>"#> T5#NT<0 1!?# T67=9AN> T6"## 6=N>"#> 1!1T##N '#979 AN> N!N#T< C#NTA?79 ('(3,,)+,.9* in government %onds in favor of #ulogio "odrigue$, 9r. and #. "odrigue$, !nc., pa&a%le within five (, &ears at not less than three percent ()E per annum: 3 T6"## 6=N>"#> T67=9AN> '#979 (')**,***.** to %e given to the 'hilippine National Fan; in pa&ment of the mortgage inde%tedness of defendants #. "odrigue$, 9r. and #. "odrigue$, !nc.: and ) the %alance of T6"## 6=N>"#> T5#NT<01!?# T67=9AN> T57 6=N>"#> 1!1T##N '#979 AN> N!N#T< C#NTA?79 (')3,,3+,.9* in cash to %e paid to all defendants a%ovenamed, through #ulogio "odrigue$, 9r., within a reasona%le time.

(3 That after approval of this compromise %& the '+,3)8,3*4.**, of which '(3,,)+,.9* were in Court, the parties herein agree not to interpose an Government Bonds. approval from the 8udgment of the Court of 1irst !nstance 7n Aarch +, +9,+, petitioner filed its income tax of "i$al (/ue$on Cit& Franch which shall %e considered return for the &ear +9,*, showing on the face thereof a final and executor& under the "ules of Court: loss of '+.,983.*(. !n said return, petitioner did not () And, finall&, that the said parties will su%mit include the sum of '(3,,)+,.9* received %& it from the this compromise agreement to the Court for its approval government in the form of %onds in pa&ment of its andGor its consideration in the decision rendered in this expropriated properties, in the %elief that the said case. amount was free or exempt from taxation. 5hen this This compromise agreement was dul& approved return was later examined %& an agent of the Fureau of %& the Court of 1irst !nstance of "i$al (/ue$on Cit& !nternal "evenue, the Collector of said %ureau assessed Franch on Aa& +3, +9,*, and pursuant to the terms against petitioner a deficienc& income tax of '(),88*.**, thereof, the Covernment paid to petitioner the sum of computed as follows4 Net income per return '+.,983.*( (loss .................................. Amount received for propert& '+,3)8,3*4.** ..... Bess4 Cost of 83.,3.9.83 Band ................... Cain ...................................... '4+*,934.+8 ........ =ndeclared '4+*,934.+8 gain .............................................. Accounts receiva%le charged off as %ad de%ts %ut not forming part of gross income .......................... +,8(*.** Aiscellaneous expenses not connected with the 4,4,*.** %usiness ........................................................ .......... Net !ncome .......................................................... ')99,3,3.+3 .... Tax due on '(),98*.** ')99,3(3.+3 ......................................... HHHHHHHHHH A series of communications %etween petitioner Tax Appeals which, after trial on the merits, rendered its and respondent Collector of !nternal "evenue followed decision affirming the assessment in 2uestion. 6ence, the foregoing assessment, with the former protesting this appeal %& petitioner thru the instant petition for against and re2uesting the cancellation of the deficienc& review of the said decision of respondent of Court of Tax income tax assessed against it, and the latter Appeals, with the following assigned errors4 maintaining its accurac& and demanding pa&ment !. T6# "#9'7N>#NT C7="T #""#> !N thereof. As petitioner, did not past, on -ul& (, +9,9, the 67B>!NC T6AT T6# #@#A'T!7N C7NT#A'BAT#> Collector of !nternal "evenue sought the collection of F< T6# F7N>9 !N /=#9T!7N A''B!#9 7NB< T7 said deficienc& income tax of '(),88*.**, plus ,E >7C=A#NTA"< 9TAA' TA@ AN> TA@ 7N surcharge and +E monthl& interest thereon from, Aarch !NT#"#9T >#"!?#> 1"7A 9=C6 F7N>9, AN> ++, +9,(, %& means of an action in the Court of 1irst T6AT 9=C6 #@#A'T!7N C7N9T!T=T#9 !nstance of Aanila. 9=11!C!#NT !N>=C#A#NT 17" '#T!T!7N#" T7 7n -une 8,; +9(*, petitioner offered %& wa& of ACC#'T 9A!> F7N>9. compromise to pa& the amount of ')*,(.(.3, in full !!. T6# "#9'7N>#NT C7="T #""#> !N settlement of its disputed deficienc& income tax lia%ilit& A11!"A!NC T6# 7">#" 71 T6# "#9'7N>#NT for +9,*. This offer was re8ected %& the Collector of C7BB#CT7" 67B>!NC '#T!T!7N#" B!AFB# 17" !nternal "evenue: whereupon, under date of -une 34, !NC7A# TA@ 7N T6# #@C6ANC# 71 !T9 +9(*, petitioner filed a petition for review of the '"7'#"T!#9 17" C7?#"NA#NT TA@0#@#A'T assessment in 2uestion %efore the respondent Court of F7N>9 =N>#" "#'=FB!C ACT N7. ))).

As petitioner correctl& puts it, the onl& 2uestion to decide here is whether or not in determining the profit reali$ed from the pa&ment of the purchase price of its (petitionerIs expropriated propert&, for income tax purposes portion of the purchase price paid in the form of tax0exempt %onds issued under "epu%lic Act No. ))) should %e included. The pertinent provisions of law involved are found in 9ection 9 of the Act a%ovementioned which reads as follows41wph1.t 9#C. 9. The 'resident of the 'hilippines is authori$ed to issue, in the name and %ehalf of the "epu%lic of the 'hilippines, %onds in an amount of twent& million pesos, the proceeds of which shall %e used as a revolving fund for the ac2uisition of private estates, the su%division of the area, and the construction of streets, %ridges, waterwor;s, sewerage and other municipal improvements in the Capital Cit& of the 'hilippines. The %onds so authori$ed to %e issued shall %ear such date and in such form as the 'resident of the 'hilippines ma& determine and shall %ear such rate of interest and run for such length of time as ma& %e determined %& the 'resident. Foth principal and interest shall %e pa&a%le in 'hilippine currenc& or its e2uivalent in the =nited 9tates currenc&, in the discretion of the 9ecretar& of 1inance, at the Treasur& of the 'hilippines, and the interest shall %e pa&a%le at such periods as the 'resident of the 'hilippines ma& determine. Said bonds shall be exempt from taxation by the Government of the Republi of the !hilippines or by any politi al or muni ipal subdivisions thereof" whi h fa t shall be stated upon their fa e" in a ordan e with this # t" under whi h the said bonds are issued. J#mphasis suppliedK 'etitioner maintains that the portion (paid in tax0 exempt Covernment Fonds of the profit it derived from the expropriation of its propert& should not %e made su%8ect to income tax, for the reasons that4 (+ the "epu%lic of the 'hilippines gave no concession to petitioner in the compromise agreement involved in this case except that, as testified to %& the law&er who represented petitioner in the negotiations which led to the compromise agreement in 2uestion, it was understood %etween the parties, and it was precisel& the onl& inducement, according to the witness, that made petitioner accept pa&ment of '(3,,)+,.9* in Covernment Fonds instead of cash, that said %onds would %e Ltax0freeL: now, it is argued that %& Ltax0freeL is meant that %& acceptance of the %onds rather than cash, petitioner would not also have to pa& income tax on the

exchange gain from said %onds: 3 (3 that the third paragraph of 9ection 9 of the Act granting tax exemption on %onds issued thereunder was inserted in the law as a further inducement to private land owners within the new capital site to part awa& with their properties in favor of the Covernment other than for cash, which legislative histor& of the law allegedl& sustains the position of petitioner: and () Congress must have reall& intended such income tax exemption under "epu%lic Act No. ))), since, similar provisions in "epu%lic Act No. +4**, ) li;ewise involving the expropriation of private estates, expressl& declare that the price paid %& the Covernment for the lands ac2uired for resale to tenants under the authorit& of said Act ("epu%lic Act No. +4** shall not %e considered as income of the landowner for purposes of the income tax. This reasoning was %rushed aside %& the respondent Court of Tax Appeals in its decision under review, on the following rationale4 'etitioner contends that since the Covernment %onds which it received as part pa&ment of the price of its lot were exempt from taxation, the deficienc& assessment made %& respondent against it is not in order. 7n the other hand, respondent claims that the exemption of Covernment %onds refers onl& the documentar& stamps on the %onds and does not include income tax on the income derived %& petitioner which was paid to him in the form of %onds. The pertinent portion of 9ection 9 of "epu%lic Act No. ))), which is the sole %asis of petitionerIs claim for exemption, provides41wph1.t 9aid %onds shall %e exempt from taxation %& the Covernment of the "epu%lic of the 'hilippines or %& an& political or municipal su%division thereof, which fact shall %e stated upon their face, in accordance with this Act, under which the said %onds are issued. There can %e no 2uestion that petitioner is taxa%le on its income derived from the sale of its propert& to the Covernment. The fact that a portion of the purchase price of the propert& was paid %& the Covernment in the form of tax exempt %onds does not operate to exempt said income from income tax. The income from the sale of the land in 2uestion and the %ond are two different and distinct taxa%le items so that the exemption of one does not operate to exempt the other, unless the law expressl& so provides. !t is alleged that to den& exemption from income tax on the amount represented %& the said %onds would %e to nullif& the purpose of the

law in granting exemption. The 2uestion has %een as;ed4 !f income or gain derived from the acceptance of such %onds in exchange for private estates would %e taxed, what inducement did such provision of "epu%lic Act No. ))) give to landowners to accept pa&ment in %onds for their properties in the proposed site of the Capital Cit&M To our mind, there is sufficient inducement, and that is, the exemption not onl& of the %onds from documentar& stamp tax %ut also of the interest derived from such %onds. 9ection 39(% (4 of the National !nternal "evenue Code exempts interest derived from such %onds from income tax to the extent provided in the law authori$ing the issue thereof. Counsel for petitioner also alleged that the prevailing rule o%taining in the =nited 9tates %efore removal of exemptions of government o%ligations was to exempt such %onds from income tax %oth as to principal and interest. To 2uote from the memorandum of counsel4 ... Actuall&, most of the 1ederal Treasur& Fonds issued %& the =.9. Covernment from +93+ to +94+, or %efore the 'u%lic >e%t Acts of +94+ and +943, that removed tax exemptions on o%ligations issued %& the =nited 9tates and its agencies and its instrumentalities, were N Iexempt, %oth as to principal and interest, from all taxation now or hereafter imposed %& the =nited 9tates, an& 9tates, or an& of the possessions of the =nited 9tates, or %& an& local taxing authorit&, except (a estate or inheritance taxes, and (% graduated additional income taxes, ;nown as surtaxes and excess profits and war profits taxes, now or hereafter imposed %& the =nited 9tates, upon the income or profits of individuals, partnerships, associations, or corporations. (! Aertens, Baw of 1ederal !ncome Taxation, pp. 39.0)+) .I J9ee page +3, Aemorandum of counsel for petitioner, Aarch 3*, +9().K Apparentl& the import of the ruling 2uoted a%ove from the %oo; of Aertens has not %een clearl& understood. 5e thin; that the exemption referred to therein of %oth principal and interest has reference to the exemption from income tax of the income derived from the sale or exchange of the %onds and the interest paid %& the =.9. Covernment on such %onds. The opinion 2uoted

from Aertens is inapplica%le to the instant case %ecause it does not refer to an& income derived %& petitioner from the sale or exchange of %onds received %& petitioner from the Covernment under "epu%lic Act No. ))). The tax here involved is on the income derived from the sale of petitionerIs propert& to the Covernment, not the income derived from the sale or exchange of the %onds. Aention has %een made of "epu%lic Act No. +4**, 9ection 33 of which provides that Ithe purchase price paid %& the Covernment for an& agricultural land ac2uired for resale to tenants under the authorit& of this Act, whether %& negotiation or expropriation, shall not %e considered as income of the landowner concerned for purposes of the income tax.I !t is argued that since "epu%lic Acts Nos. ))) and +4** are in pari materia %oth should %e construed together, and since "epu%lic Act No. +4** exempts income derived from the sale of propert& to the Covernment under said Act, the same exemption should also appl& to income derived from the sale of propert& to the Covernment under "epu%lic Act No. ))). !t is precisel& %ecause "epu%lic Act No. +4** contains an express exemption from income tax of the income derived %& propert& owners from the sale of their lands under said Act and the a%sence of a similarl& provision in "epu%lic Act No. ))) which indicates plainl& that Congress intended not to grant such exemption to landowners under "epu%lic Act No. ))). !f Congress had intended to grant exemption from income tax with respect to income derived %& a person from the sale of his propert& under "epu%lic Act No. ))), it should have expressl& made an express provision to that effect as it did in "epu%lic Act No. +4**: that it did not, is a clear indication that its purpose was to withhold such exemption. 5e find no cogent reasons to distur% the a%ove holding of the Court of Tax Appeals. !t has %een the constant and uniform holding of this Court that exemption from taxation is not favored and is never presumed: in fact, if it is granted, the grant must %e strictl& construed against the taxpa&er. 4 Affirmativel& put, the law re2uires courts to frown on alleged exemptions from taxation, hence, an exempting provision in a legislative enactment should %e construed in stri tissimi $uris , against the taxpa&er and li%erall& in favor of the taxing authorit&. ( This Court has %een most consistent in this holding. !n #siati !etroleum %o. vs. &lanes, . it was

explained %e&ond an& possi%ilit& of miscomprehension that4 . ... #xemptions from taxation are highl& disfavored, so much so that the& ma& almost %e said to %e odious to the law. 6e who claims an exemption must %e a%le to point to some positive provision of law creating the right. !t cannot %e allowed to exist upon a vague implication ... The %oo;s are full of ver& strong expressions on this point. As was said %& the 9upreme Court of Tennessee in 'emphis vs. ( ) !. Ban* (9+ Tenn. ,4(, ,,* , IThe right of taxation is inherent in the 9tate. !t is a prerogative essential to the perpetuit& of the government: and he who claims an exemption from the common %urden, must 8ustif& his claim %& the clearest grant of organic or statute law.I 7ther utterances e2uall& or more emphatic come readil& to hand from the highest authorit&. !n +hio &ife ,ns. and -rust %o. vs. .ebolt (+( 6oward 4+( , it was said %& Chief -ustice Tane&, that the right of taxation will not %e held to have %een surrendered, Iunless the intention to surrender is manifested %& words too plain to %e mista;en.I !n the case of the >elaware "ailroad Tax (+8 5allace 3*(, 33( , the 9upreme Court of the =nited 9tates said that the surrender, when claimed, must %e shown %& clear, unam%iguous language, which will admit of no reasona%le construction consistent with the reservation of the power. !f a dou%t arises as to the intent of the legislature, that dou%t must %e resolved in favor of the 9tate. !n /rie Railway %ompany vs. %ommonwealth of !ennsylvania (3+ 5allace 493, 499 , Ar. -ustice 6unt, spea;ing of exemptions, o%served that the 9tate cannot strip itself of the most essential power of taxation %& dou%tful words. I!t cannot %& am%iguous language, %e deprived of this highest attri%ute of sovereignt&.I !n -ennessee vs. 0hitworth (++. =.9. +39, +)( , it was said4 I!n all cases of this ;ind the 2uestion is as to the intent of the legislature, the presumption alwa&s %eing against an& surrender of the taxing power.I !n 1arrin2ton vs. -ennessee and %ounty of Shelby (9, =.9. (.9, (8( , Ar. -ustice 9wa&ne said4 I... 5hen exemption is claimed it must %e shown indu%ita%l& to exist. At the outset ever& presumption is against it. A well0founded dou%t is fatal to the claim. !t is onl& when the terms of the concession are too explicit to admit fairl& of an& other construction that the proposition can %e supported.I

The a%ove rules should %e applied to the case at %ar where the law invo;ed (9ection 9 of "epu%lic Act No. ))) does not ma;e an& reference whatsoever to exemption of income derived from sale of expropriated propert& thereunder unli;e under "epu%lic Act No. +4** where relative to the price paid %& the Covernment for an& agricultural land ac2uired for resale to tenants there is an express declaration that the same Lshall not %e considered as income of the landowner concerned for purposes of the income tax.L Nor are 5e convinced %& the argument that the particular provision of "epu%lic Act No. ))) relied upon which grants exemption on %onds issued thereunder for purposes of inducement to private landowners within the new capital site to part awa& with their properties in favor of the Covernment other than for cash should %e ta;en to mean that said propert& owners need not pa& income tax on their income derived from the sale of such properties. The pertinent Congressional "ecord of the proceedings held during the consideration of the %ill which later %ecame "epu%lic Act No. ))), 8does not show that Congress had intended to exempt said propert& owners from the pa&ment of income tax on the proceeds of the sale of their properties when the same is paid in government %onds issued under the said law. Bi;ewise even were 5e to assume for the sa;e of argument, that the Capital Cit& 'lanning Commission and other officials of the government did ma;e some assurance or promise to herein petitioner that the portion of the price of its expropriated propert& paid in tax0exempt government %onds would not %e made su%8ect to income tax pa&ment, such assurance or promise, made without statutor& sanction, cannot %ind the Covernment. The same amounts to a surrender of the 9tateIs power to re2uire pa&ment of income tax, which in this case is not explicitl& granted %& "epu%lic Act No. ))). !t is a well0 ;nown rule that erroneous application and enforcement of the law %& pu%lic officers do not %loc; su%se2uent correct application of the statute, 9 and that the Covernment is never estopped %& mista;e or error on the part of its agents. +* !n the present circumstances, the Collector of !nternal "evenue is right in assessing against petitioner the deficienc& income tax in 2uestion, consonant with the proposition that income from expropriation proceedings is income from sales or exchange and therefore taxa%le. ++ 17" T6# 17"#C7!NC C7N9!>#"AT!7N9, the decision of the Court of Tax Appeals under review is affirmed, with costs against herein petitioner.1w

G.R. No. L-2(602 F)*+u!+y 1,, 19-0

RE%U'LIC FLOUR .ILL&, INC., petitioner, vs. THE CO..I&&IONER OF INTERNAL RE ENUE !"# THE COURT OF TA$ A%%EAL&, respondents. RE/E&, J.'.L., J.: Appeal %& the "epu%lic 1lour Aills from the decision of the Court of Tax Appeals (in CTA Case No. ++,+ on the sole 2uestion of whether or not in computing the manufacturerIs sales tax due on the flour it manufactured and sold in +9,9, wherein wheat grains imported tax0free in +9,8 were utili$ed, the cost of said wheat grains is deducti%le. As stipulated %& the parties and found %& the court %elow, the facts of this case are %riefl& as follows4 !n +9,., the "epu%lic 1lour Aills, !nc., a domestic corporation engaged in the %usiness of manufacturing flour, was granted tax0exemption privileges as a new and necessar& industr& pursuant to "epu%lic Act 9*+,1 commencing on 38 -anuar& +9,. to continue as a diminishing exemption until )+ >ecem%er +9(3.2 !n +9,8, the corporation imported a 2uantit& of wheat grains, part of which it was not a%le to mill and use in the %usiness that &ear, so that %& + -anuar& +9,9 the corporation carried a surplus of '+,48(,(+(.4+ worth of wheat grains from the previous &earIs importation. These surplus grains were finall& utili$ed and manufactured into flour and sold in +9,9. 1or the &ear +9,9, the corporation paid manufacturerIs sales tax on its produce in the sum of ').,3.,.,,, in the computation of which the cost of the wheat left over from the +9(8 importation was treated as a deducti%le item from the gross sales in +9,9. 7n 38 Aarch +9(+, the Commissioner of !nternal "evenue assessed the corporation of deficienc& tax for +9,9 in the total sum of '3),+.*.+.. The corporation re2uested a reinvestigation of the assessment, and when it was denied filed a petition for review in the Court of Tax Appeals (CTA Case No. ++,+ to contest the assessment of advance sales tax on the wheat grains imported tax0free in +9,8 and the disallowance of the deduction of the cost of said wheat grains from its gross sales of flour in +9,9. "espondent Commissioner of !nternal "evenue defended and maintained the assessment, on the ground that %& +9,9 the raw materials used %& petitioner in its tax0exempt industr& were alread& su%8ect to pa&ment of +*E tax thereon. >uring the hearing, the parties entered into a 'artial 9tipulation of 1acts, the pertinent provisions of which are the following4 +3. That the legal issue is whether or not the cost of raw materials imported tax0free in the &ear +9,8 which raw materials were utili$ed in the &ear +9,9 for the manufacture of flour sold

in +9,9, is deducti%le from the gross sales in the &ear +9,9: +). !f the legal 2uestion %efore this 6onora%le Court should %e resolved in the affirmative, 'etitionerIs tax lia%ilit& shall %e '),388.+( computed as follows4 Net sales '3+,*++,8+8.+. >educt4 Cost of raw materials used for flour (including tax0free raw materials +,,)+*,8*(..4 Taxa%le gross sales ,,.*+,*++.4) .E tax thereon ))9,*.*.8* +*E of said tax ')9,9*..*8 Bess4 Amount of Tax paid ).,3.(.,, >eficienc& sales tax '3,()*.,) 'lus 3,E surcharge (,..() T7TAB AA7=NT 'A<AFB# '),388.+( +4. 7n the other hand, if the 2uestion is resolved in the negative, petitionerIs tax lia%ilit& shall %e '34,,8..98 computed as follows4 Net sales '3+,*++,8+8.+. >educt4 Cost of raw materials used for flour '+,,)+*.8*(..4 Bess4 Cost of tax0free raw materials 3,4)4,3(4.34 +3,8.(,,43.,* Taxa%le gross sales '8,+),,3.,.(. .E tax thereon ,(9,4(9.)* +*E of said tax ,(,94(.9) Bess amount paid ).,3.(.,, >eficienc& sales tax due '+9,(.*.)8 'lus 3,E surcharge 4,9+..(* T7TAB AA7=NT >=# D C7BB#CT!FB# ' 34,,8..98 7n +3 >ecem%er +9(,, the Court of Tax Appeals sustained the correctness of the disputed assessment, and petitioner corporation was ordered to pa& the sum of '34,,8..98 as deficienc& sales tax and surcharge. 6ence the filing %& petitioner of the present appeal, on the same legal issue litigated %& the parties in the court %elow. !t ma& %e o%served from the stipulated facts 2uoted a%ove that the issue in this case has nothing to do with the enforcement or exercise of the tax0exemption privileges granted to the petitioner. The point in controvers& is onl& whether or not the cost of the tax0free wheat grains used in the manufacture of flour, which is also tax0exempt, is a deducti%le item for purposes of computing the percentage tax (+*E admittedl& due on the said manufactured product in +9,9.

>isputing the assessment of deficienc& tax %& the respondent Commissioner of !nternal "evenue, herein petitioner insists that the cost of imported tax0free wheat grains is a deducti%le item from its gross sales of the flour, pursuant to 9ection +8(0A of the !nternal "evenue Code, which reads4 9#C. +8(0A. 5henever a tax free product is utili$ed in the manufacture or production of an& article, in the determination of the value of such finished article, the value of such tax free product shall %e deducted. "espondent Commissioner refutes this contention, sa&ing that, as defined %& the !nternal "evenue 7ffice, the term Ltax0free productL mentioned in the a%ove0 2uoted 9ection +8(0A refers to raw materials purchased from tax0exempt industries,3 whereas the wheat grains involved in the case, although used %& a tax0exempt industr&, were not ac2uired from one en8o&ing tax0 exemption privilege under our laws. !n the resolution of the lone issue in this case, it is worthwhile to mention that prior to 33 -une +9,. the prevailing rule on the matter was to allow the cost of raw materials used in the manufacture of another article to %e deducted from gross sales, whenever such raw materials had %een su%8ected to sales tax. The reason therefor, as expressed %& this Court, was to preclude a second assessment of the percentage tax on the raw materials.4 This ruling finds %asis in 9ection +8( of the Tax Code which reads4 9#C. +8(. !er enta2e tax on sales of other arti les. N There shall %e levied, assessed and collected once onl& on ever& original sale, %arter, exchange, and similar transaction either for nominal or valua%le considerations, intended to transfer ownership of, or title to, the articles not enumerated in sections one hundred and eight&0four and one hundred and eight&0five a tax e2uivalent to seven per centum of the gross selling price or gross value in mone& of the articles so sold, %artered, exchanged or transferred, such tax to %e paid %& the manufacturer or producer4 !rovided" -hat where the arti les sub$e t to tax under this se tion are manufa tured out of materials li*ewise sub$e t to tax under this section and section one hundred and eight&0nine, the total cost of such materials, as dul& esta%lished, shall %e deducti%le from the gross selling price or gross value in mone& of such manufactured articles. xxx xxx xxx (#mphasis supplied 5ith the esta%lishment of tax0exempt industries in the mid0,*s, enforcement of the foregoing provision must have created a peculiar pro%lem, so much so that 7n 33

-une +9,. the legislature enacted "epu%lic Act 3*3,, which inserted +8(0A in the Tax Code, expressl& constituting the value of tax0free products to %e a deducti%le item from the gross sales of the finished goods manufactured out of the same. Cast against this %ac;ground, 5e agree with the petitioner that there is actuall& no cause here calling for an administrative definition or interpretation of 9ection +8(0A. 1or no reason exists to read into the provision a 2ualification that is not there, nor to give to the phrase Ltax0free productL a meaning other than what it ordinaril& and commonl& conve&s N a material or article exempted from pa&ment of tax. The respondent Commissioner himself could suppl& no plausi%le reason for excluding tax0free imported raw materials from the coverage of the term Ltax0freeL product other than the lame argument that wheat grains are not a LproductL %ecause the& are not made out of another article (?. F.!.". Circular No. ?03,3, +, -ul& +9,. . The CommissionerIs stand, upheld %& the Tax Court, runs contrar& to the legal definition of the term LproductL which covers Lan&thing that is produced, whether as the result of generation, growth, la%or or thoughtL (Aolina vs. "affert&, )8 'hil. +.+: ,* C.-.9., pages ()+()3 . !f, as held in the case cited, fish were agricultural produ t, no reason is seen wh& wheat grains should not e2uall& %e products of agriculture. !ndeed, if the CommissionerIs definition were correct, it would %e logical to expect that 9ection +8(0A of the Tax Code (ante instead of referring to La tax free produ tL utili$ed in the manufacture of other articles, would have proclaimed the deducti%ilit& of the value of Lproducts of a tax exempt industry ... utili$ed in the manufacture or production of an& article.L 1urther, it must not %e overloo;ed that the exemption granted to the petitioner covered not onl& the sales tax of the manufactured product %ut also the sales tax Lon raw materials and supplies to %e used exclusivel& in the manufacture of such (exempt productsL (Frief for Appellee, page + . To %ar the deducti%ilit& of the value of such raw materials is to tear awa& the tax exemption from sales tax on said materials. !ndeed, if, as is conceded, these wheat grains were allowed to enter in +9,8 as exempt from pa&ing advance sales tax, no reason exists wh& the value of this same material should %e su%8ected to tax 8ust %ecause the& were milled in +9,9 and not in the &ear of importation. That petitionerIs manufactured flour would %e su%8ect in +9,9 to onl& a part of the normal sales tax, pursuant to "epu%lic Act 9*+, would not alter the principles herein esta%lished. !t is true that in the construction of tax statutes tax exemptions (and deductions are of this nature are not

favored in the law, and are construed stri tissimi $uris against the taxpa&er.( 6owever, it is e2uall& a recogni$ed principle that where the provision of the law is clear and unam%iguous, so that there is no occasion for the courtIs see;ing the legislative intent, the law must %e ta;en as it is, devoid of 8udicial addition or su%traction.6 !n this case, we find the provision of 9ection +8(0A N Lwhenever a tax free produ t is utili$ed, etc.L N all encompassing to comprehend tax0 free raw materials, even if imported. 5here the law provided no 2ualification for the granting of the privilege, the court is not at li%ert& to suppl& an&. 56#"#17"#, and for the foregoing considerations, the decision appealed from is reversed and set aside, and, in accordance with the stipulation of the parties, petitioner is here%& ordered to pa& to respondent Commissioner the sum of '),388.+( as deficienc& tax, with legal interest thereon from the date the tax %ecame due.- No costs. G.R. No. L-30232 July 29, 19,, LUZON &TE EDORING COR%ORATION, petitioner0 appellant, vs. COURT OF TA$ A%%EAL& !"# 01) HONORA'LE CO..I&&IONER OF INTERNAL RE ENUE, respondents0appellees. %ARA&, J.: This is a petition for review of the 7cto%er 3+, +9(8 >ecision 2 of the Court of Tax Appeals in CTA Case No. +484, LBu$on 9tevedoring Corporation v. 6on. "amon 7%en, Commissioner, Fureau of !nternal "evenueL, den&ing the various claims for tax refund: and the 1e%ruar& 3*, +9(9 "esolution of the same court den&ing the motion for reconsideration. 6erein petitioner0appellant, in +9(+ and +9(3, for the repair and maintenance of its tug%oats, imported various engine parts and other e2uipment for which it paid, under protest, the assessed compensating tax. =na%le to secure a tax refund from the Commissioner of !nternal "evenue, on -anuar& 3, +9(4, it filed a 'etition for "eview ("ollo, pp. +40+8 with the Court of Tax Appeals, doc;eted therein as CTA Case No. +484, pra&ing among others, that it %e granted the refund of the amount of ')),443.+). The Court of Tax Appeals, however, in a >ecision dated 7cto%er 3+, +9(9 (,bid., pp. 3303. , denied the various claims for tax refund. The decretal portion of the said decision reads4 56#"#17"#, finding petitionerIs various claims for refund amounting to ')),443.+) without sufficient legal 8ustification, the said claims have to %e, as the& are here%&, denied. 5ith costs against petitioner. 7n -anuar& 34, +9(9, petitioner0appellant filed a Aotion for "econsideration (,bid., pp. 380)4 , %ut the same was

denied in a "esolution dated 1e%ruar& 3*, +9(9 (,bid., p. ), . 6ence, the instant petition. This Court, in a "esolution dated Aarch +), +9(9, gave due course to the petition (,bid., p. 4* . 'etitioner0 appellant raised three () assignments of error, to wit4 ! The lower court erred in holding that the petitioner0appellant is engaged in %usiness as stevedore, the wor; of unloading and loading of a vessel in port, contrar& to the evidence on record. !! The lower court erred in not holding that the %usiness in which petitioner0appellant is engaged, is part and parcel of the shipping industr&. !!! The lower court erred in not allowing the refund sought %& petitioner0appellant. The instant petition is without merit. The pivotal issue in this case is whether or not petitionerIs tug%oatsL can %e interpreted to %e included in the term Lcargo vesselsL for purposes of the tax exemption provided for in 9ection +9* of the National !nternal "evenue Code, as amended %& "epu%lic Act No. )+.(. 9aid law provides4 9ec. +9*. %ompensatin2 tax. N ... And 'rovided further, That the tax imposed in this section shall not appl& to articles to %e used %& the importer himself in the manufacture or preparation of articles su%8ect to specific tax or those for consignment a%road and are to form part thereof or to articles to %e used %& the importer himself as passenger andGor cargo vessel, whether coastwise or oceangoing, including engines and spare parts of said vessel. .... 'etitioner contends that tu2boats are em%raced and included in the term ar2o vessel under the tax exemption provisions of 9ection +9* of the "evenue Code, as amended %& "epu%lic Act. No. )+.(. 6e argues that in legal contemplation, the tug%oat and a %arge loaded with cargoes with the former towing the latter for loading and unloading of a vessel in part, constitute a single vessel. Accordingl&, it concludes that the engines, spare parts and e2uipment imported %& it and used in the repair and maintenance of its tug%oats are exempt from compensating tax ("ollo, p. 3) . 7n the other hand, respondents0appellees counter that petitioner0appellantIs Ltug%oatsL are not LCargo vesselL %ecause the& are neither designed nor used for carr&ing andGor transporting persons or goods %& themselves %ut are mainl& emplo&ed for towing and pulling purposes. As

such, it cannot %e claimed that the tug%oats in 2uestion are used in carr&ing and transporting passengers or cargoes as a common carrier %& water, either coastwise or oceangoing and, therefore, not within the purview of 9ection +9* of the Tax Code, as amended %& "epu%lic Act No. )+.( (Frief for "espondents0Appellees, pp. 4, . This Court has laid down the rule that Las the power of taxation is a high prerogative of sovereignt&, the relin2uishment is never presumed and an& reduction or dimunition thereof with respect to its mode or its rate, must %e strictl& construed, and the same must %e coached in clear and unmista;a%le terms in order that it ma& %e applied.L (84 C.-.9. pp. (,908** , Aore specificall& stated, the general rule is that an& claim for exemption from the tax statute should %e strictl& construed against the taxpa&er (Acting Commissioner of Customs v. Aanila #lectric Co. et al., (9 9C"A 4(9 J+9..K and Commissioner of !nternal "evenue v. '.-. Oiener Co. Btd., et al., (, 9C"A +43 J+9.,K . As correctl& anal&$ed %& the Court of Tax Appeals, in order that the importations in 2uestion ma& %e declared exempt from the compensating tax, it is indispensa%le that the re2uirements of the amendator& law %e complied with, namel&4 (+ the engines and spare parts must %e used %& the importer himself as a passenger andGor cargo, vessel: and (3 the said passenger andGor cargo vessel must %e used in coastwise or oceangoing navigation (>ecision, CTA Case No. +484: "ollo, p. 34 . As pointed out %& the Court of Tax Appeals, the amendator& provisions of "epu%lic Act No. )+.( limit tax exemption from the compensating tax to imported items to %e used %& the importer himself as operator of passenger andGor cargo vessel (,bid., p. 3, . As 2uoted in the decision of the Court of Tax Appeals, a tug%oat is defined as follows4 A tu2boat is a strongl& %uilt, powerful steam or power vessel, used for towing and, now, also used for attendance on vessel. (5e%ster New !nternational >ictionar&, 3nd #d. A tu2boat is a diesel or steam power vessel designed primaril& for moving large ships to and from piers for towing %arges and lighters in har%ors, rivers and canals. (#nc&clopedia !nternational Crolier, ?ol. +8, p. 3,( . A tu2 is a steam vessel %uilt for towing, s&non&mous with tug%oat. (FouvierIs Baw >ictionar&. ("ollo, p. 34 . =nder the foregoing definitions, petitionerIs tug%oats clearl& do not fall under the categories of passenger andGor cargo vessels. Thus, it is a cardinal principle of statutor& construction that where a provision of law spea;s categoricall&, the need for interpretation is o%viated, no plausi%le pretense %eing entertained to 8ustif& non0compliance. All that has to %e done is to appl&

it in ever& case that falls within its terms (Allied Fro;erage Corp. v. Commissioner of Customs, B03.(4+, 4* 9C"A ,,, J+9.+K: /ui8ano, etc. v. >F', B03(4+9, ), 9C"A 3.* J+9.*K . And, even if construction and interpretation of the law is insisted upon, following another fundamental rule that statutes are to %e construed in the light of purposes to %e achieved and the evils sought to %e remedied ('eople v. 'urisima etc., et al., B043*,*0((, 8( 9C"A ,44 J+9.8K, it will %e noted that the legislature in amending 9ection +9* of the Tax Code %& "epu%lic Act )+.(, as appearing in the records, intended to provide incentives and inducements to %olster the shipping industr& and not the %usiness of stevedoring, as manifested in the sponsorship speech of 9enator Cil 'u&at ("ollo, p. 3( . 7n anal&sis of petitioner0appellantIs transactions, the Court of Tax Appeals found that no evidence was adduced %& petitioner0appellant that tug%oats are passenger andGor cargo vessels used in the shipping industr& as an independent %usiness. 7n the contrar&, petitioner0appellantIs own evidence supports the view that it is engaged as a stevedore, that is, the wor; of unloading and loading of a vessel in port: and towing of %arges containing cargoes is a part of petitionerIs underta;ing as a stevedore. !n fact, even its trade name is indicative that its sole and principal %usiness is stevedoring and lighterage, taxed under 9ection +9+ of the National !nternal "evenue Code as a contractor, and not an entit& which transports passengers or freight for hire which is taxed under 9ection +93 of the same Code as a common carrier %& water (>ecision, CTA Case No. +484: "ollo, p. 3, . =nder the circumstances, there appears to %e no plausi%le reason to distur% the findings and conclusion of the Court of Tax Appeals. As a matter of principle, this Court will not set aside the conclusion reached %& an agenc& such as the Court of Tax Appeals, which is, %& the ver& nature of its function, dedicated exclusivel& to the stud& and consideration of tax pro%lems and has necessaril& developed an expertise on the su%8ect unless there has %een an a%use or improvident exercise of authorit& ("e&es v. Commissioner of !nternal "evenue, 34 9C"A +99 J+98+K , which is not present in the instant case. '"#A!9#9 C7N9!>#"#>, the instant petition is >!9A!99#> and the decision of the Court of Tax Appeals is A11!"A#>. 97 7">#"#>. 3G.R. No. 132(2-. July 29, 200(4 Co5o"u0 O6l R)76")+8 98. To++)8 DECI&ION AZCUNA, J.:

This is a 'etition for 'rohi%ition and !n8unction see;ing to en8oin and prohi%it the #xecutive Franch, through the pu%lic respondents "u%en Torres in his capacit& as #xecutive 9ecretar&, the Fases Conversion >evelopment Authorit& (FC>A , the Clar; >evelopment Corporation (C>C and the 9u%ic Fa& Aetropolitan Authorit& (9FAA , from allowing, and the private respondents from continuing with, the operation of tax and dut&0free shops located at the 9u%ic 9pecial #conomic Pone (99#P and the Clar; 9pecial #conomic Pone (C9#P , and to declare the following issuances as unconstitutional, illegal, and void4 +. 9ection , of #xecutive 7rder No. 8*, J+K dated April ), +99), regarding the C9#P. 3. #xecutive 7rder No. 9.0A, dated -une +9, +99), pertaining to the 99#P. ). 9ection 4 of FC>A Foard "esolution No. 9)0*,0*)4,J3K dated Aa& +8, +99), pertaining to the C9#P. 'etitioners contend that the aforecited issuances are unconstitutional and void as the& constitute executive lawma;ing, and that the& are contrar& to "epu%lic Act No. .33.J)K and in violation of the Constitution, particularl& 9ection +, Article !!! (e2ual protection clause , 9ection +9, Article @!! (prohi%ition of unfair competition and com%inations in restraint of trade , and 9ection +3, Article @!! (preferential use of 1ilipino la%or, domestic materials and locall& produced goods . The facts are as follows4 7n Aarch +), +993, "epu%lic Act No. .33. was enacted, providing for, among other things, the sound and %alanced conversion of the Clar; and 9u%ic militar& reservations and their extensions into alternative productive uses in the form of special economic $ones in order to promote the economic and social development of Central Bu$on in particular and the countr& in general. Among the salient provisions are as follows4 9#CT!7N +3. Subi Spe ial / onomi 3one. N ... The a%ovementioned $one shall %e su%8ect to the following policies4 (a 5ithin the framewor; and su%8ect to the mandate and limitations of the Constitution and the pertinent provisions of the Bocal Covernment Code, the 9u%ic 9pecial #conomic Pone shall %e developed into a self0 sustaining, industrial, commercial, financial and investment center to generate emplo&ment opportunities in and around the $one and to attract and promote productive foreign investments: (% The 9u%ic 9pecial #conomic Pone shall %e operated and managed as a separate customs territor& ensuring free flow or movement of goods and capital within, into and exported out of the 9u%ic 9pecial

#conomic Pone, as well as provide incentives such as tax and dut&0free importations of raw materials, capital and e2uipment. 6owever, exportation or removal of goods from the territor& of the 9u%ic 9pecial #conomic Pone to the other parts of the 'hilippine territor& shall %e su%8ect to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the 'hilippines:J4K (c The provision of existing laws, rules and regulations to the contrar& notwithstanding, no taxes, local and national, shall %e imposed within the 9u%ic 9pecial #conomic Pone. !n lieu of pa&ing taxes, three percent ()E of the gross income earned %& all %usinesses and enterprises within the 9u%ic 9pecial #coomic Pone shall %e remitted to the National Covernment, one percent (+E each to the local government units affected %& the declaration of the $one in proportion to their population area, and other factors. !n addition, there is here%& esta%lished a development fund of one percent (+E of the gross income earned %& all %usinesses and enterprises within the 9u%ic 9pecial #conomic Pone to %e utili$ed for the development of municipalities outside the Cit& of 7langapo and the Aunicipalit& of 9u%ic, and other municipalities contiguous to the %ase areas. ... 9#CT!7N +,. %lar* and +ther Spe ial / onomi 3ones. N 9u%8ect to the concurrence %& resolution of the local government units directl& affected, the 'resident is here%& authori$ed to create %& executive proclamation a 9pecial #conomic Pone covering the lands occupied %& the Clar; militar& reservations and its contiguous extensions as em%raced, covered and defined %& the +94. Ailitar& Fases Agreement %etween the 'hilippines and the =nited 9tates of America, as amended, located within the territorial 8urisdiction of Angeles Cit&, Aunicipalities of Aa%alacat and 'orac, 'rovince of 'ampanga and the Aunicipalit& of Capas, 'rovince of Tarlac, in accordance with the policies as herein provided insofar as applica%le to the Clar; militar& reservations. The governing %od& of the Clar; 9pecial #conomic Pone shall li;ewise %e esta%lished %& executive proclamation with such powers and functions exercised %& the #xport 'rocessing Pone Authorit& pursuant to 'residential >ecree No. (( as amended. The policies to govern and regulate the Clar; 9pecial #conomic Pone shall %e determined upon consultation with the inha%itants of the local government units directl& affected which shall %e conducted within six (( months upon approval of this Act. 9imilarl&, su%8ect to the concurrence %& resolution of the local government units directl& affected, the 'resident shall create other 9pecial #conomic Pones, in the %ase

10

areas of 5allace Air 9tation in 9an 1ernando, Ba =nion (excluding areas designated for communications, advance warning and radar re2uirements of the 'hilippine Air 1orce to %e determined %& the Conversion Authorit& and Camp -ohn 6a& in the Cit& of Faguio. =pon recommendation of the Conversion Authorit&, the 'resident is li;ewise authori$ed to create 9pecial #conomic Pones covering the Aunicipalities of Aorong, 6ermosa, >inalupihan, Castille8os and 9an Aarcelino. 7n April ), +99), 'resident 1idel ?. "amos issued #xecutive 7rder No. 8*, which declared, among others, that Clar; shall have all the applica%le incentives granted to the 9u%ic 9pecial #conomic and 1ree 'ort Pone under "epu%lic Act No. .33.. The pertinent provision assailed therein is as follows4 9#CT!7N ,. !nvestments Climate in the C9#P. N 'ursuant to 9ection ,(m and 9ection +, of "A .33., the FC>A shall promulgate all necessar& policies, rules and regulations governing the C9#P, including investment incentives, in consultation with the local government units and pertinent government departments for implementation %& the C>C. Among others, the C9#P shall have all the applica%le incentives in the 9u%ic 9pecial #conomic and 1ree 'ort Pone under "A .33. and those applica%le incentives granted in the #xport 'rocessing Pones, the 7mni%us !nvestments Code of +98., the 1oreign !nvestments Act of +99+ and new investments laws which ma& hereinafter %e enacted. The C9#P Aain Pone covering the Clar; Air Fase proper shall have all the aforecited investment incentives, while the C9#P 9u%0Pone covering the rest of the C9#P shall have limited incentives. The full incentives in the Clar; 9#P Aain Pone and the limited incentives in the Clar; 9#P 9u%0Pone shall %e determined %& the FC>A. 'ursuant to the directive under #xecutive 7rder No. 8*, the FC>A passed Foard "esolution No. 9)0*,0*)4 on Aa& +8, +99), allowing the tax and dut&0free sale at retail of consumer goods imported via Clar; for consumption outside the C9#P. The assailed provisions of said resolution read, as follows4 9ection 4. 9'#C!1!C !NC#NT!?#9 !N T6# C9#P AA!N P7N#. Q The C9#P0registered enterprisesG%usinesses shall %e entitled to all the incentives availa%le under ".A. No. .33., #.7. No. 33( and ".A. No. .*43 which shall include, %ut not limited to, the following4 !. As in 9u%ic #conomic and 1ree 'ort Pone4 A. Customs4 ... 4. Tax and dut&0free purchase and consumption of goodsGarticles (dut& free shopping within the C9#P Aain Pone.

,. 1or individuals, dut&0free consumer goods ma& %e %rought out of the C9#P Aain Pone into the 'hilippine Customs territor& %ut not to exceed =9R3**.** per month per C>C0registered person, similar to the limits imposed in the 9u%ic 9#P. This privilege shall %e en8o&ed onl& once a month. An& excess shall %e levied taxes and duties %& the Fureau of Customs. 7n -une +*, +99), the 'resident issued #xecutive 7rder No. 9., SClarif&ing the Tax and >ut& 1ree !ncentive 5ithin the 9u%ic 9pecial #conomic Pone 'ursuant to ".A. No. .33..T 9aid issuance in part states, thus4 9#CT!7N +. 7n !mport Taxes and >uties Q Tax and dut&0free importations shall appl& onl& to raw materials, capital goods and e2uipment %rought in %& %usiness enterprises into the 99#P. #xcept for these items, importations of other goods into the 99#P, whether %& %usiness enterprises or resident individuals, are su%8ect to taxes and duties under relevant 'hilippine laws. The exportation or removal of tax and dut&0free goods from the territor& of the 99#P to other parts of the 'hilippine territor& shall %e su%8ect to duties and taxes under relevant 'hilippine laws. Nine da&s after, on -une +9, +99), #xecutive 7rder No. 9.0A was issued, S1urther Clarif&ing the Tax and >ut&01ree 'rivilege 5ithin the 9u%ic 9pecial #conomic and 1ree 'ort Pone.T The relevant provisions read, as follows4 9#CT!7N +. The following guidelines shall govern the tax and dut&0free privilege within the 9ecured Area of the 9u%ic 9pecial #conomic and 1ree 'ort Pone4 +.+ The 9ecured Area consisting of the presentl& fenced0in former 9u%ic Naval Fase shall %e the onl& completel& tax and dut&0free area in the 99#1'P. Fusiness enterprises and individuals (1ilipinos and foreigners residing within the 9ecured Area are free to import raw materials, capital goods, e2uipment, and consumer items tax and dut&0free. Consumption items, however, must %e consumed within the 9ecured Area. "emoval of raw materials, capital goods, e2uipment and consumer items out of the 9ecured Area for sale to non0 99#1'P registered enterprises shall %e su%8ect to the usual taxes and duties, except as ma& %e provided herein. +.3. "esidents of the 99#1'P living outside the 9ecured Area can enter the 9ecured Area and consume an& 2uantit& of consumption items in hotels and restaurants within the 9ecured Area. 6owever, these residents can purchase and %ring out of the 9ecured Area to other parts of the 'hilippine territor& consumer items worth not exceeding =9R+** per month per person. 7nl& residents age +, and over are entitled to this privilege.

11

+.). 1ilipinos not residing within the 99#1'P can enter the 9ecured Area and consume an& 2uantit& of consumption items in hotels and restaurants within the 9ecured Area. 6owever, the& can purchase and %ring out JofK the 9ecured Area to other parts of the 'hilippine territor& consumer items worth not exceeding =9R3** per &ear per person. 7nl& 1ilipinos age +, and over are entitled to this privilege. 'etitioners assail the R+** monthl& and R3** &earl& tax0free shopping privileges granted %& the aforecited provisions respectivel& to 99#P residents living outside the 9ecured Area of the 99#P and to 1ilipinos aged +, and over residing outside the 99#P. 7n 1e%ruar& 3), +998, petitioners thus filed the instant petition, see;ing the declaration of nullit& of the assailed issuances on the following grounds4 !. #@#C=T!?# 7">#" N7. 9.0A, 9#CT!7N , 71 #@#C=T!?# 7">#" N7. 8*, AN> 9#CT!7N 4 71 FC>A F7A"> "#97B=T!7N N7. 9)0*,0*)4 A"# N=BB AN> ?7!> J17"K F#!NC AN #@#"C!9# 71 #@#C=T!?# BA5AAO!NC. !!. #@#C=T!?# 7">#" N7. 9.0A, 9#CT!7N , 71 #@#C=T!?# 7">#" N7. 8*, AN> 9#CT!7N 4 71 FC>A F7A"> "#97B=T!7N N7. 9)0*,0*)4 A"# =NC7N9T!T=T!7NAB 17" F#!NC ?!7BAT!?# 71 T6# #/=AB '"7T#CT!7N CBA=9# AN> T6# '"76!F!T!7N ACA!N9T =N1A!" C7A'#T!T!7N AN> '"ACT!C#9 !N "#9T"A!NT 71 T"A>#. !!!. #@#C=T!?# 7">#" N7. 9.0A, 9#CT!7N , 71 #@#C=T!?# 7">#" N7. 8*, AN> 9#CT!7N 4 71 FC>A F7A"> "#97B=T!7N N7. 9)0*,0*)4 A"# N=BB AN> ?7!> J17"K F#!NC ?!7BAT!?# 71 "#'=FB!C ACT N7. .33.. !?. T6# C7NT!N=#> !A'B#A#NTAT!7N 71 T6# C6ABB#NC#> !99=ANC#9 !1 N7T "#9T"A!N#> 5!BB C7NT!N=# T7 CA=9# '#T!T!7N#"9 T7 9=11#" C"A?# AN> !""#'A"AFB# !N-="<. J,K !n their Comments, respondents point out procedural issues, alleging lac; of petitionersU legal standing, the unreasona%le dela& in the filing of the petition, laches, and the propriet& of the remed& of prohi%ition. Anent the claim on lac; of legal standing, respondents argue that petitioners, %eing mere suppliers of the local retailers operating outside the special economic $ones, do not stand to suffer dire t in8ur& in the enforcement of the issuances %eing assailed herein. Assuming this is true, this Court has nevertheless held that in cases of paramount importance where serious constitutional 2uestions are involved, the standing

re2uirements ma& %e relaxed and a suit ma& %e allowed to prosper even where there is no direct in8ur& to the part& claiming the right of 8udicial review. J(K !n the same vein, with respect to the other alleged procedural flaws, even assuming the existence of such defects, this Court, in the exercise of its discretion, %rushes aside these technicalities and ta;es cogni$ance of the petition considering the importance to the pu%lic of the present case and in ;eeping with the dut& to determine whether the other %ranches of the government have ;ept themselves within the limits of the Constitution.J.K Now, on the constitutional arguments raised4 As this Court enters upon the tas; of passing on the validit& of an act of a co0e2ual and coordinate %ranch of the Covernment, it %ears emphasis that deepl& ingrained in our 8urisprudence is the time0honored principle that a statute is presumed to %e valid. J8K This presumption is rooted in the doctrine of separation of powers which en8oins upon the three coordinate departments of the Covernment a %ecoming courtes& for each otherUs acts. J9K 6ence, to dou%t is to sustain. The theor& is that %efore the act was done or the law was enacted, earnest studies were made %& Congress, or the 'resident, or %oth, to insure that the Constitution would not %e %reached.J+*K This Court, however, ma& declare a law, or portions thereof, unconstitutional where a petitioner has shown a clear and une2uivocal %reach of the Constitution, not merel& a dou%tful or argumentative one. J++K !n other words, %efore a statute or a portion thereof ma& %e declared unconstitutional, it must %e shown that the statute or issuance violates the Constitution clearl&, palpa%l& and plainl&, and in such a manner as to leave no dou%t or hesitation in the mind of the Court. J+3K The Issue on Executive Legislation 'etitioners claim that the assailed issuances (#xecutive 7rder No. 9.0A: 9ection , of #xecutive 7rder No. 8*: and 9ection 4 of FC>A Foard "esolution No. 9)0*,0*)4 constitute executive legislation, in violation of the rule on separation of powers. 'etitioners argue that the #xecutive >epartment, %& allowing through the 2uestioned issuances the setting up of tax and dut&0free shops and the removal of consumer goods and items from the $ones without pa&ment of corresponding duties and taxes, ar%itraril& provided additional exemptions to the limitations imposed %& "epu%lic Act No. .33., which limitations petitioners identif& as follows4 (+ J"epu%lic Act No. .33.K allowed onl& tax and dut&0free importation of raw materials, capital and e2uipment. (3 !t provides that an& exportation or removal of goods from the territor& of the 9u%ic 9pecial #conomic Pone to other parts of the 'hilippine territor& shall %e su%8ect to customs duties and

12

taxes under the Customs and Tariff Code and other relevant tax laws of the 'hilippines. Anent the first alleged limitation, petitioners contend that the wording of "epu%lic Act No. .33. clearl& limits the grant of tax incentives to the importation of raw materials, capital and e2uipment onl&. 6ence, the& claim that the assailed issuances constitute executive legislation for invalidl& granting tax incentives in the importation of consumer goods such as those %eing sold in the dut&0free shops, in violation of the letter and intent of "epu%lic Act No. .33.. A careful reading of 9ection +3 of "epu%lic Act No. .33., which pertains to the 99#P, would show that it does not restrict the dut&0free importation onl& to Sraw materials, capital and e2uipment.T 9ection +3 of the cited law is partl& reproduced, as follows4 9#CT!7N +3. Subi Spe ial / onomi 3one. N ... The a%ovementioned $one shall %e su%8ect to the following policies4 ... (% The 9u%ic 9pecial #conomic Pone shall %e operated and managed as a separate customs territor& ensuring free flow or movement of goods and capital within, into and exported out of the 9u%ic 9pecial #conomic Pone, as well as provide incentives such as tax and dut&0free importations of raw materials, capital and e2uipment. 6owever, exportation or removal of goods from the territor& of the 9u%ic 9pecial #conomic Pone to the other parts of the 'hilippine territor& shall %e su%8ect to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the 'hilippines.J+)K 5hile it is true that 9ection +3 (% of "epu%lic Act No. .33. mentions onl& raw materials, capital and e2uipment, this does not necessaril& mean that the tax and dut&0free %u&ing privilege is limited to these t&pes of articles to the exclusion of consumer goods. !t must %e remem%ered that in construing statutes, the proper course is to start out and follow the true intent of the Begislature and to adopt that sense which harmoni$es %est with the context and promotes in the fullest manner the polic& and o%8ects of the Begislature.J+4K !n the present case, there appears to %e no logic in following the narrow interpretation petitioners urge. To limit the tax0free importation privilege of enterprises located inside the special economic $one onl& to raw materials, capital and e2uipment clearl& runs counter to the intention of the Begislature to create a free port where the Sfree flow of 2oods or capital within, into, and out of the $onesT is insured. The phrase Stax and dut&0free importations of raw materials, capital and e2uipmentT was merel& cited as an

example of incentives that ma& %e given to entities operating within the $one. 'u%lic respondent 9FAA correctl& argued that the maxim expressio unius est ex lusio alterius" on which petitioners impliedl& rel& to support their restrictive interpretation, does not appl& when words are mentioned %& wa& of example. J+,K !t is o%vious from the wording of "epu%lic Act No. .33., particularl& the use of the phrase Ssuch as,T that the enumeration onl& meant to illustrate incentives that the 99#P is authori$ed to grant, in line with its %eing a free port $one. 1urthermore, said legal maxim should %e applied onl& as a means of discovering legislative intent which is not otherwise manifest, and should not %e permitted to defeat the plainl& indicated purpose of the Begislature. J+(K The records of the 9enate containing the discussion of the concept of Sspecial economic $oneT in 9ection +3 (a of "epu%lic Act No. .33. show the legislative intent that consumer goods entering the 99#P ;1651 8!0687y 01) "))#8 o7 01) <o") !"# !+) 5o"8u=)# 01)+) are not su%8ect to duties and taxes in accordance with 'hilippine laws, thus4 &)"!0o+ Gu6">o"!. . . . The concept of 9pecial #conomic Pone is one that reall& includes the concept of a free port, %ut it is %roader. 5hile a free port is necessaril& included in the 9pecial #conomic Pone, the reverse is not true that a free port would include a special economic $one. 9pecial #conomic Pone, Ar. 'resident, would include not onl& the incoming and outgoing of vessels, dut&0free and tax0free, %ut it would involve also tourism, servicing, financing and all the appurtenances of an investment center. 9o, that is the concept, Ar. 'resident. !t is %roader. !t includes the free port concept and would cater to the greater needs of 7langapo Cit&, 9u%ic Fa& and the surrounding municipalities. &)"!0o+ E"+6l). Aa& ! ;now then if a factor& located within the 8urisdiction of Aorong, Fataan that was originall& a part of the 9u%ic Naval reservation, %e entitled to a free port treatment or 8ust a special economic $one treatmentM &)"!0o+ Gu6">o"!. As far as the goods re2uired for manufacture is concerned, Ar. 'resident, it would have privileges of dut&0free and tax0free. But in addition" the Spe ial / onomi 3one ould embra e the needs of tourism" ould embra e the needs of servi in2" ould embra e the needs of finan in2 and other investment aspe ts. &)"!0o+ E"+6l). 5hen a hotel is constructed, Ar. 'resident, in this geographical unit which we call a special economic $one, will the goods entering to %e consumed %& the customers or guests of the hotel %e su%8ect to dutiesM

13

&)"!0o+ Gu6">o"!. That is the concept that we are crafting, Ar. 'resident. &)"!0o+ E"+6l). No. ! am as;ing whether those goods will %e dut&0free, %ecause it is constructed within a free port. &)"!0o+ Gu6">o"!. 1or as lon2 as it servi es the needs of the Spe ial / onomi 3one" yes. &)"!0o+ E"+6l). 1or as lon2 as the 2oods remain within the 4one" whether we all it an e onomi 4one or a free port" for as lon2 as we say in this law that all 2oods enterin2 this parti ular territory will be duty5free and tax5 free" for as lon2 as they remain there" onsumed there or reexported or destroyed in that pla e" then they are not sub$e t to the duties and taxes in a ordan e with the laws of the !hilippinesM &)"!0o+ Gu6">o"!. 6es.J+.K 'etitioners rel& on Committee "eport No. +3*( su%mitted %& the Ad 6oc 7versight Committee on Fases Conversion on -une 3(, +99,. 'etitioners put emphasis on the reportUs finding that the setting up of dut&0free stores never figured in the minds of the authors of "epu%lic Act No. .33. in attracting foreign investors to the former militar& %aselands. The& maintain that said law aimed to attract manufacturing and service enterprises that will emplo& the dislocated former militar& %ase wor;ers, %ut not investors who would %u& consumer goods from dut&0free stores. The Court is not persuaded. !ndeed, it is well0 esta%lished that opinions expressed in the de%ates and proceedings of the Begislature, steps ta;en in the enactment of a law, or the histor& of the passage of the law through the Begislature, ma& %e resorted to as aids in the interpretation of a statute with a dou%tful meaning. J+8K 'etitionersU posture, however, overloo;s the fact that the +99, Committee "eport the& are referring to came into %eing well after the enactment of "epu%lic Act No. .33. in +99). 6ence, as pointed out %& respondent #xecutive 9ecretar& Torres, the aforementioned report cannot %e said to form part of "epu%lic Act No. .33.Us legislative histor&. 9ection +3 of "epu%lic Act No. .33., provides in part, thus4 9#C. +3. 9u%ic 9pecial #conomic Pone. 00 . . . The a%ovementioned $one shall %e su%8ect to the following policies4 (a 5ithin the framewor; and su%8ect to the mandate and limitations of the Constitution and the pertinent provisions of the Bocal Covernment Code, the 9u%ic 9pecial #conomic Pone shall %e developed into a self0 sustaining, industrial, ommer ial, financial and investment center to generate emplo&ment opportunities in and around the $one and to attract and promote productive foreign investments. J+9K

The aforecited polic& was mentioned as a %asis for the issuance of #xecutive 7rder No. 9.0A, thus4 56#"#A9, "epu%lic Act No. .33. provides that within the framewor; and su%8ect to the mandate and limitations of the Constitution and the pertinent provisions of the Bocal Covernment Code, the 9u%ic 9pecial #conomic and 1ree 'ort Pone (99#1'P shall %e developed into a self0sustaining industrial, commercial, financial and investment center to generate emplo&ment opportunities in and around the $one and to attract and promote productive foreign investments: and 56#"#A9, a special tax and dut&0free privilege within a 9ecured Area in the 99#1'P su%8ect, to existing laws has %een determined necessar& to attract local and foreign visitors to the $one. #xecutive 7rder No. 9.0A provides guidelines to govern the Stax and dut&0free privileges within the 9ecured Area of the 9u%ic 9pecial #conomic and 1ree 'ort Pone.T 'aragraph +.( thereof states that S(t he sale of tax and dut&0free consumer items in the 9ecured Area shall onl& %e allowed in dul& authori$ed dut&0free shops.T The Court finds that the setting up of such commercial esta%lishments which are the onl& ones dul& authori$ed to sell consumer items tax and dut&0free is still well within the polic& enunciated in 9ection +3 of "epu%lic Act No. .33. that S. . .01) &u*65 &?)56!l E5o"o=65 Zo") 81!ll *) #)9)lo?)# 6"0o ! 8)l78u80!6"6">, 6"#u80+6!l, 5o==)+56!l, 76"!"56!l !"# 6"9)80=)"0 5)"0)+ 0o >)")+!0) )=?loy=)"0 o??o+0u"606)8 6" !"# !+ou"# 01) <o") !"# 0o !00+!50 !"# ?+o=o0) ?+o#u5069) 7o+)6>" 6"9)80=)"08 .T (#mphasis supplied. 6owever, the Court reiterates that the 8)5o"# 8)"0)"5)8 o7 ?!+!>+!?18 1.2 !"# 1.3 o7 E@)5u069) O+#)+ No. 9--A, allowing tax and dut&0free +)=o9!l o7 >oo#8 to certain individuals, even in a limited amount, from the 9ecured Area of the 99#P, !+) "ull !"# 9o6# 7o+ *)6"> 5o"0+!+y 0o &)506o" 12 o7 R)?u*l65 A50 No. -22-. 9aid 9ection clearl& provides that Sexportation or removal of goods from the territor& of the 9u%ic 9pecial #conomic Pone to the other parts of the 'hilippine territor& shall %e su%8ect to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the 'hilippines.T 7n the other hand, insofar as the C9#P is concerned, the case for an invalid exercise of executive legislation is tena%le. !n 7ohn 8ay !eoples #lternative %oalition" et al. v. 9i tor &im" et al.,J3*K this Court resolved an issue, ver& much li;e the one herein, concerning the legalit& of the tax exemption %enefits given to the -ohn 6a& #conomic Pone under 'residential 'roclamation No. 43*, 9eries of +994, SC"#AT!NC AN> >#9!CNAT!NC A '7"T!7N 71 T6# A"#A C7?#"#> F< T6# 17"A#" CAA'

14

-76N A9 T6# -76N 6A< 9'#C!AB #C7N7A!C P7N# '="9=ANT T7 "#'=FB!C ACT N7. .33..T !n that case, among the arguments raised was that the granting of tax exemptions to -ohn 6a& was an invalid and illegal exercise %& the 'resident of the powers granted onl& to the Begislature. 'etitioners therein argued that "epu%lic Act No. .33. expressl& granted tax exemption onl& to 9u%ic and not to the other economic $ones &et to %e esta%lished. Thus, the grant of tax exemption to -ohn 6a& %& 'residential 'roclamation contravenes the constitutional mandate that SJnKo law granting an& tax exemption shall %e passed without the concurrence of a ma8orit& of all the mem%ers of Congress.TJ3+K This Court sustained the argument and ruled that the incentives under "epu%lic Act No. .33. are exclusive onl& to the 99#P. The 'resident, therefore, had no authorit& to extend their application to -ohn 6a&. To 2uote from the >ecision4 Aore importantl&, the nature of most of the assailed privileges is one of tax exemption. !t is the legislature, unless limited %& a provision of a state constitution, that has full power to exempt an& person or corporation or class of propert& from taxation, its power to exempt %eing as %road as its power to tax. 7ther than Congress, the Constitution ma& itself provide for specific tax exemptions, or local governments ma& pass ordinances on exemption onl& from local taxes. The challenged grant of tax exemption would circumvent the ConstitutionUs imposition that a law granting an& tax exemption must have the concurrence of a ma8orit& of all the mem%ers of Congress. !n the same vein, the other ;inds of privileges extended to the -ohn 6a& 9#P are %& tradition and usage for Congress to legislate upon. Contrar& to pu%lic respondentsU suggestions, the claimed statutor& exemption of the -ohn 6a& 9#P from taxation should %e manifest and unmista;a%le from the language of the law on which it is %ased: it must %e expressl& granted in a statute stated in a language too clear to %e mista;en. Tax exemption cannot %e implied as it must %e categoricall& and unmista;a%l& expressed. !f it were the intent of the legislature to grant to -ohn 6a& 9#P the same tax exemption and incentives given to the 9u%ic 9#P, it would have so expressl& provided in ".A. No. .33..J33K !n the present case, while 9ection +3 of "epu%lic Act No. .33. expressl& provides for the grant of incentives to the 99#P, it fails to ma;e an& similar grant in favor of other economic $ones, including the C9#P. Tax and dut&0free incentives %eing in the nature of tax exemptions, the %asis thereof should %e categoricall& and unmista;a%l& expressed from the language of the statute. Conse2uentl&, in the a%sence of an& express grant of tax and dut&0free privileges to the C9#P in

a.

%.

c.

"epu%lic Act No. .33., there would %e no legal %asis to uphold the 2uestioned portions of two issuances4 9ection , of #xecutive 7rder No. 8* and 9ection 4 of FC>A Foard "esolution No. 9)0*,0*)4, which %oth pertain to the C9#P. 'etitioners also contend that the 2uestioned issuances constitute executive legislation for allowing the removal of consumer goods and items from the $ones without pa&ment of corresponding duties and taxes in violation of "epu%lic Act No. .33. as 9ection +3 thereof provides for the taxation of goods that are exported or removed from the 99#P to other parts of the 'hilippine territor&. 7n 9eptem%er 3(, +99., #xecutive 7rder No. 444 was issued, curtailing the dut&0free shopping privileges in the 99#P and the C9#P Sto prevent a%use of dut&0 free privilege and to protect local industries from unfair competition.T The pertinent provisions of said issuance state, as follows4 9#CT!7N ). 9pecial 9hopping 'rivileges Cranted >uring the <ear0round Centennial Anniversar& Cele%ration in +998. N =pon effectivit& of this 7rder and up to the Centennial <ear +998, in addition to the permanent residents, locators and emplo&ees of the fenced0in areas of the 9u%ic 9pecial #conomic and 1reeport Pone and the Clar; 9pecial #conomic Pone who are allowed unlimited dut& free purchases, provided these are consumed within said fenced0in areas of the Pones, the residents of the municipalities ad8acent to 9u%ic and Clar; as respectivel& provided in ".A. .33. (+993 and #.7. 9.0A s. +99) shall continue to %e allowed 7ne 6undred =9 >ollars (=9R+** monthl& shopping privilege until )+ >ecem%er +998. >omestic tourists visiting 9u%ic and Clar; shall %e allowed a shopping privilege of =9R3, for consuma%le goods which shall %e consumed onl& in the fenced0in area during their visit therein. 9#CT!7N 4. Crant of >ut& 1ree 9hopping 'rivileges Bimited 7nl& To !ndividuals Allowed %& Baw. N 9tarting + -anuar& +999, onl& the following persons shall continue to %e eligi%le to shop in dut& free shopsGoutlets with their corresponding purchase limits4 Tourists and 1ilipinos traveling to or returning from foreign destinations under #.7. 9.0A s. +99) N 7ne Thousand =9 >ollars (=9R+,*** %ut not to exceed Ten Thousand =9 >ollars (=9R+*,*** in an& given &ear: 7verseas 1ilipino 5or;ers (715s and Fali;%a&ans defined under ".A. (.(8 dated ) Novem%er +989 N Two Thousand =9 >ollars (=9R3,*** : "esidents, eighteen (+8 &ears old and a%ove, of the fenced0in areas of the freeports under ".A. .33. (+993 and #.7. 9.0A s. +99) N =nlimited purchase as long as these are for consumption within these freeports.

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The term L"esidentsL mentioned in item c a%ove shall refer to individuals who, %& virtue of domicile or emplo&ment, reside on permanent %asis within the freeport area. The term excludes (+ non0residents who have entered into short0 or long0term propert& lease inside the freeport, (3 outsiders engaged in doing %usiness within the freeport, and () mem%ers of private clu%s (e.g., &acht and golf clu%s %ased or located within the freeport. !n this regard, dut& free privileges granted to an& of the a%ove individuals (e.g., unlimited shopping privilege, tax0free importation of cars, etc. are here%& revo;ed.J3)K A perusal of the a%ove provisions indicates that effective -anuar& +, +999, the grant of dut&0free shopping privileges to domestic tourists and to residents living ad8acent to 99#P and the C9#P had %een revo;ed. "esidents of the fenced0in area of the free port are still allowed unlimited purchase of consumer goods, Sas long as these are for consumption within these freeports.T 6ence, the onl& individuals allowed %& law to shop in the dut&0free outlets and remove consumer goods out of the free ports tax0free are tourists and 1ilipinos traveling to or returning from foreign destinations, and 7verseas 1ilipino 5or;ers and Fali;%a&ans as defined under "epu%lic Act No. (.(8. J34K 9u%se2uentl&, on 7cto%er 3*, 3***, #xecutive 7rder No. )*) was issued, amending #xecutive 7rder No. 444. 'ursuant to the limited duration of the privileges granted under the preceding issuance, 9ection 3 of #xecutive 7rder No. )*) declared that SJaKll special shopping privileges as granted under 9ection ) of #xecutive 7rder 444, s. +99., are here%& deemed terminated. The grant of dut& free shopping privileges shall %e restricted to 2ualified individuals as provided %& law.T !t %ears noting at this point that the shopping privileges currentl& %eing en8o&ed %& 7verseas 1ilipino 5or;ers, Fali;%a&ans, and tourists traveling to and from foreign destinations, draw authorit& not from the issuances %eing assailed herein, %ut from #xecutive 7rder No. 4(J3,K and "epu%lic Act No. (.(8, %oth enacted prior to the promulgation of "epu%lic Act No. .33.. 1rom the foregoing, it appears that petitionersU o%8ection to the allowance of tax0free removal of goods from the special economic $ones as previousl& authori$ed %& the 2uestioned issuances has %ecome moot and academic. !n an& event, "epu%lic Act No. .33., specificall& 9ection +3 (% thereof, clearl& provides that Sexportation or removal of goods from the territor& of the 9u%ic 9pecial #conomic Pone to the other parts of the 'hilippine territor& shall %e su%8ect to customs duties and

taxes under the Customs and Tariff Code and other relevant tax laws of the 'hilippines.T Thus, the removal of goods from the 99#P to other parts of the 'hilippine territor& without pa&ment of said customs duties and taxes is not authori$ed %& the Act. Conse2uentl&, the following italici$ed provisions found in the second sentences of paragraphs +.3 and +.), 9ection + of #xecutive 7rder No. 9.0A are null and void4 +.3 "esidents of the 99#1'P living outside the 9ecured Area can enter and consume an& 2uantit& of consumption items in hotels and restaurants within the 9ecured Area. 8owever" these residents an pur hase and brin2 out of the Se ured #rea to other parts of the !hilippine territory onsumer items worth not ex eedin2 (S :1;; per month per person. 7nl& residents age +, and over are entitled to this privilege. +.) 1ilipinos not residing within the 99#1'P can enter the 9ecured Area and consume an& 2uantit& of consumption items in hotels and restaurants within the 9ecured Area. 8owever" they an pur hase and brin2 out of the Se ured #rea to other parts of the !hilippine territory onsumer items worth not ex eedin2 (S :<;; per year per person. 7nl& 1ilipinos age +, and over are entitled to this privilege.J3(K A similar provision found in paragraph ,, 9ection 4(A of FC>A Foard "esolution No. 9)0*,0*)4 is also null and void. 9aid "esolution applied the incentives given to the 99#P under "epu%lic Act No. .33. to the C9#P, which, as aforestated, is without legal %asis. 6aving concluded earlier that the C9#P is excluded from the tax and dut&0free incentives provided under "epu%lic Act No. .33., this Court will resolve the remaining arguments onl& with regard to the operations of the 99#P. Thus, the assailed issuance that will %e discussed is solel& #xecutive 7rder No. 9.0A, since it is the onl& one among the three 2uestioned issuances which pertains to the 99#P. Equal Protection of the Laws 'etitioners argue that the assailed issuance (#xecutive 7rder No. 9.0A is violative of their right to e2ual protection of the laws, as enshrined in 9ection +, Article !!! of the Constitution. To support this argument, the& assert that private respondents operating inside the 99#P are not different from the retail esta%lishments located outside, the products sold %eing essentiall& the same. The onl& distinction, the& claim, lies in the productsU variet& and source, and the fact that private respondents import their items tax0free, to the pre8udice of the retailers and manufacturers located outside the $one. 'etitionersU contention cannot %e sustained. !t is an esta%lished principle of constitutional law that the guarant& of the e2ual protection of the laws is not violated %& a legislation %ased on a reasona%le

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classification.J3.K Classification, to %e valid, must (+ rest on su%stantial distinction, (3 %e germane to the purpose of the law, () not %e limited to existing conditions onl&, and (4 appl& e2uall& to all mem%ers of the same class.
J38K

Appl&ing the foregoing test to the present case, this Court finds no violation of the right to e2ual protection of the laws. 1irst" contrar& to petitionersU claim, su%stantial distinctions lie %etween the esta%lishments inside and outside the $one, 8ustif&ing the difference in their treatment. !n -iu v. %ourt of #ppeals"J39K the constitutionalit& of #xecutive 7rder No. 9.0A was challenged for %eing violative of the e2ual protection clause. !n that case, petitioners claimed that #xecutive 7rder No. 9.0A was discriminator& in confining the application of "epu%lic Act No. .33. within a secured area of the 99#P, to the exclusion of those outside %ut are, nevertheless, still within the economic $one. =pholding the constitutionalit& of #xecutive 7rder No. 9.0A, this Court therein found su%stantial differences %etween the retailers inside and outside the secured area, there%& 8ustif&ing a valid and reasona%le classification4 Certainl&, there are su%stantial differences %etween the %ig investors who are %eing lured to esta%lish and operate their industries in the so0called Ssecured areaT and the present %usiness operators outside the area. 7n the one hand, we are tal;ing of %illion0peso investments and thousands of new 8o%s. 7n the other hand, definitel& none of such magnitude. !n the first, the economic impact will %e national: in the second, onl& local. #ven more important, at this time the %usiness activities outside the Ssecured areaT are not li;el& to have an& impact in achieving the purpose of the law, which is to turn the former militar& %ase to produ tive use for the %enefit of the 'hilippine econom&. There is, then, hardl& an& reasona%le %asis to extend to them the %enefits and incentives accorded in ".A. .33.. Additionall&, as the Court of Appeals pointed out, it will %e easier to manage and monitor the activities within the Ssecured area,T which is alread& fenced off, to prevent Sfraudulent importation of merchandiseT or smuggling. !t is well0settled that the e2ual0protection guarantee does not re2uire territorial uniformit& of laws. As long as there are actual and material differences %etween territories, there is no violation of the constitutional clause. And of course, an&one, including the petitioners, possessing the re2uisite investment capital can alwa&s avail of the same %enefits %& channeling his or her resources or %usiness operations into the fenced0off free port $one.J)*K The Court in -iu found real and su%stantial distinctions %etween residents within the secured area and those living within the economic $one %ut outside

the fenced0off area. 9imilarl&, real and su%stantial differences exist %etween the esta%lishments herein involved. A significant distinction %etween the two groups is that enterprises outside the $ones maintain their %usinesses within 'hilippine customs territor&, while private respondents and the other dul&0registered $one enterprises operate within the so0called Sseparate customs territor&.T To grant the same tax incentives given to enterprises within the $ones to %usinesses operating outside the $ones, as petitioners insist, would clearl& defeat the statuteUs intent to carve a territor& out of the militar& reservations in 9u%ic Fa& where free flow of goods and capital is maintained. The classification is germane to the purpose of "epu%lic Act No. .33.. As held in -iu" the real concern of "epu%lic Act No. .33. is to convert the lands formerl& occupied %& the =9 militar& %ases into economic or industrial areas. !n furtherance of such o%8ective, Congress deemed it necessar& to extend economic incentives to the esta%lishments within the $one to attract and encourage foreign and local investors. This is the ver& rationale %ehind "epu%lic Act No. .33. and other similar special economic $one laws which grant a complete pac;age of tax incentives and other %enefits. The classification, moreover, is not limited to the existing conditions when the law was promulgated, %ut to future conditions as well, inasmuch as the law envisioned the former militar& reservation to ultimatel& develop into a self0sustaining investment center. And, lastl&, the classification applies e2uall& to all retailers found within the Ssecured area.T As ruled in -iu" the individuals and %usinesses within the Ssecured area,T %eing in li;e circumstances or contri%uting directl& to the achievement of the end purpose of the law, are not categori$ed further. The& are all similarl& treated, %oth in privileges granted and in o%ligations re2uired. 5ith all the four re2uisites for a reasona%le classification present, there is no ground to invalidate #xecutive 7rder No. 9.0A for %eing violative of the e2ual protection clause. Prohibition against Unfair Com etition an! Practices in "estraint of Tra!e 'etitioners next argue that the grant of special tax exemptions and privileges gave the private respondents undue advantage over local enterprises which do not operate inside the 99#P, there%& creating unfair competition in violation of the constitutional prohi%ition against unfair competition and practices in restraint of trade. The argument is without merit. -ust how the assailed issuance is violative of the prohi%ition against unfair competition and practices in restraint of trade is not clearl& explained in the petition. "epu%lic Act No.

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.33., and conse2uentl& #xecutive 7rder No. 9.0A, cannot %e said to %e distinctivel& ar%itrar& against the welfare of %usinesses outside the $ones. The mere fact that incentives and privileges are granted to certain enterprises to the exclusion of others does not render the issuance unconstitutional for espousing unfair competition. 9aid constitutional prohi%ition cannot hinder the Begislature from using tax incentives as a tool to pursue its policies. 9uffice it to sa& that Congress had 8ustifia%le reasons in granting incentives to the private respondents, in accordance with "epu%lic Act No. .33.Us polic& of developing the 99#P into a self0 sustaining entit& that will generate emplo&ment and attract foreign and local investment. !f petitioners had wanted to avoid an& alleged unfavora%le conse2uences on their profits, the& should upgrade their standards of 2ualit& so as to effectivel& compete in the mar;et. !n the alternative, if petitioners reall& wanted the preferential treatment accorded to the private respondents, the& could have opted to register with 99#P in order to operate within the special economic $one. Preferential Use of #ili ino Labor$ %omestic &aterials an! Locall' Pro!uce! (oo!s Bastl&, petitioners claim that the 2uestioned issuance (#xecutive 7rder No. 9.0A openl& violated the 9tate polic& of promoting the preferential use of 1ilipino la%or, domestic materials and locall& produced goods and adopting measures to help ma;e them competitive. Again, the argument lac;s merit. This Court notes that petitioners failed to su%stantiate their sweeping conclusion that the issuance has violated the 9tate polic& of giving preference to 1ilipino goods and la%or. The mere fact that said issuance authori$es the importation and trade of foreign goods does not suffice to declare it unconstitutional on this ground. 'etitioners cite 'anila !rin e 8otel v. GS,SJ)+K which, however, does not appl&. That case dealt with the polic& enunciated under the second paragraph of 9ection +*, Article @!! of the Constitution, J)3K applica%le to the grant of rights, privileges, and concessions Scovering the national econom& and patrimon&,T which is different from the polic& invo;ed in this petition, specificall& that of giving preference to 1ilipino materials and la%or found under 9ection +3 of the same Article of the Constitution. (#mphasis supplied . !n -aada v. #n2ara"J))K this Court ela%orated on the meaning of 9ection +3, Article @!! of the Constitution in this wise4 J5Khile the Constitution indeed mandates a %ias in favor of 1ilipino goods, services, la%or and enterprises, at the same time, it recogni$es the need for %usiness

exchange with the rest of the world on the %ases of e2ualit& and reciprocit& and limits protection of 1ilipino enterprises onl& against foreign competition and trade practices that are unfair. !n other words, the Constitution did not intend to pursue an isolationist polic&. !t did not shut out foreign investments, goods and services in the development of the 'hilippine econom&. 5hile the Constitution does not encourage the unlimited entr& of foreign goods, services and investments into the countr&, it does not prohi%it them either. !n fact, it allows an exchange on the %asis of e2ualit& and reciprocit&, frowning onl& on foreign competition that is unfair.J)4K This Court notes that the #xecutive >epartment, with its su%se2uent issuance of #xecutive 7rder Nos. 444 and )*), has provided certain measures to prevent unfair competition. !n particular, #xecutive 7rder Nos. 444 and )*) have restricted the special shopping privileges to certain individuals.J),K #xecutive 7rder No. )*) has limited the range of items that ma& %e sold in the dut&0free outlets,J)(K and imposed sanctions to cur% a%uses of dut&0free privileges. J).K 5ith these measures, this Court finds no reason to stri;e down #xecutive 7rder No. 9.0A for allegedl& %eing pre8udicial to 1ilipino la%or, domestic materials and locall& produced goods. AHEREFORE, the petition is 'A"TB< C"ANT#>. 9ection , of #xecutive 7rder No. 8* and 9ection 4 of FC>A Foard "esolution No. 9)0*,0*)4 are here%& declared N=BB and ?7!> and are accordingl& declared of no legal force and effect. "espondents are here%& en8oined from implementing the aforesaid void provisions. All portions of #xecutive 7rder No. 9.0A are valid and effective, except the second sentences in paragraphs +.3 and +.) of said #xecutive 7rder, which are here%& declared !N?AB!>. No costs. &O ORDERED.
G.R. No. ,,291 .!y 31, 1991 ERNE&TO .. .ACEDA, petitioner, vs. HON. CATALINO .ACARAIG, JR., 6" 168 5!?!560y !8 E@)5u069) &)5+)0!+y, O7765) o7 01) %+)86#)"0B HON. ICENTE R. JA/.E, 6" 168 5!?!560y !8 &)5+)0!+y o7 01) D)?!+0=)"0 o7 F6"!"5)B HON. &AL ADOR .I&ON, 6" 168 5!?!560y !8 Co==6886o")+, 'u+)!u o7 Cu80o=8B HON. JO&E U. ONG, 6" 168 5!?!560y !8 Co==6886o")+ o7 I"0)+"!l R)9)"u)B NATIONAL %OAER COR%ORATIONB 01) FI&CAL INCENTI E& RE IEA 'OARDB C!l0)@ C%16l8.D I"5.B %6l6?6"!8 &1)ll %)0+ol)u= Co+?o+!06o"B %16l6??6") N!06o"!l O6l Co+?o+!06o"B !"# %)0+o?16l Co+?o+!06o", respondents.

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